JetBlue’s Earnings Preview: Impact From Severe Winter Weather Will Likely Moderate Growth In Results

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JetBlue Airways (NASDAQ:JBLU) will announce its first quarter results Thursday, April 24. The low cost carrier is coming off a good 2013 in which its revenues rose by 9% annually to $5.4 billion and profits rose by 31% annually to $168 million, on gains from rapid capacity expansion. The carrier raised its flying capacity by 7% annually in 2013 to drive growth in its passenger traffic and revenues. [1]

In the first quarter however JetBlue expanded its flying capacity at a more measured pace of around 3%, on a year-over-year basis. [2] This lower rate of capacity addition from JetBlue was primarily due to the severe winter weather experienced in the northeast U.S. around the start of this year. As JetBlue gets a significant portion of its overall passenger traffic from this region including from its hubs at New York and Boston, it was severely impacted from the inclement weather conditions in this region. In a filing in late January, the carrier said that it had to cancel approximately 1,800 flights due to this severe weather. [1] As a result, we figure the growth in JetBlue’s revenues and profits will be hit in the first quarter. The carrier estimates that the severe winter weather reduced its first quarter revenues by approximately $45 million. [1] This is around 3% of its $1.3 billion revenues in the first quarter of last year. [3] Given that over the past few quarters, with higher rates of capacity addition, JetBlue’s top line has risen in the high single digits. The impact from this severe winter period will be significant and the carrier’s revenue will grow at a more moderate rate in the first quarter.

On the bright side, we anticipate JetBlue’s first quarter profits to face less pressure from its maintenance and repair costs. Last year, these costs rose by 28% annually outstripping the single digit growth in the carrier’s revenues to weigh on its profits. [1]

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In all, we anticipate JetBlue to post moderate growth in its results in the first quarter. We currently have a stock price estimate of $9 for JetBlue, around 5% ahead of its current market price.

See our complete analysis of JetBlue here

Slower Growth In Maintenance Costs Will Ease Pressure On JetBlue’s Profits

JetBlue’s first quarter profits will benefit from slower growth in its maintenance and repair costs. Last year, the growth in these costs consistently outstripped the growth in JetBlue’s revenues. As a result, these costs weighed on the carrier’s 2013 profits. These maintenance and repair costs increased at a high rate in 2013 as JetBlue’s airplane fleet, which is among the youngest in the U.S. airline industry, entered a phase that required heavier, and more frequent checks and repairs. We figure the carrier’s fleet is largely beyond that phase now. And, in the first quarter and over the remaining months of 2014, the growth in JetBlue’s maintenance and repair costs will likely be more moderate. This in turn will ease pressure on its 2014 profits.

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Notes:
  1. JetBlue’s 2013 Q4 earnings form 8-K, January 29 2014, www.jetblue.com [] [] [] []
  2. JetBlue’s March traffic results, April 10 2014, www.jetblue.com []
  3. JetBlue’s 2013 Q1 earning results, April 25 2013, www.jetblue.com []